China’s solar sector is grappling with a significant downturn, resulting in losses estimated at $60 billion in 2023. Major firms, including Longi Green Energy, Trina Solar, Jinko Solar, JA Solar, and Tongwei, collectively laid off approximately 87,000 employees, accounting for nearly one-third of their workforce. This drastic reduction highlights the impact of aggressive price wars and excess production capacity within the industry.
The situation unfolded as China’s solar industry, once viewed as a vital component for economic growth, began to struggle with falling prices and weak demand. A recent analysis by Reuters indicates that the world currently produces twice as many solar panels annually as it consumes, with the majority manufactured in China. This overcapacity has resulted in a fierce competition that has driven prices down and led to significant financial losses for manufacturers.
According to Cheng Wang, an analyst at Morningstar, the industry has faced challenges since the end of 2023, which have only intensified into 2024 and are expected to worsen in 2025. “The downturn has been relentless,” Wang noted, emphasizing the severity of the crisis.
The reported layoffs reflect a combination of forced reductions and voluntary departures, as companies imposed cuts to pay and working hours in an effort to mitigate financial losses. Notably, these layoffs are politically sensitive in China, where maintaining employment levels is closely tied to social stability. Despite the extensive job cuts, many companies have not publicly acknowledged the layoffs, with Longi being the only firm to report a 5% reduction in its workforce.
Industry Response and Future Prospects
Over the past year, more than 40 solar firms have either delisted, gone bankrupt, or been acquired, according to a report from the photovoltaic industry association. The situation has been exacerbated by government initiatives that previously funneled resources into the solar sector, diverting them from the struggling property market. As a result, manufacturers expanded their production capabilities rapidly between 2020 and 2023, leading to a significant decline in panel prices.
Industry experts are now calling for a drastic reduction in manufacturing capacity. GCL, a leading polysilicon producer, announced plans to establish a coalition resembling OPEC, aimed at managing prices and supply. This initiative includes a 50 billion yuan fund designed to acquire and shut down a substantial portion of the industry’s lower-quality production facilities.
In early July, President Xi Jinping urged an end to “disorderly price competition,” emphasizing the need for stability within the solar sector. Subsequently, the Ministry of Industry and Information Technology committed to addressing capacity issues and curbing outdated production lines. While the government has not specified a timeline for these changes, sources indicate that officials are keen to tackle the problem before the conclusion of the current five-year plan.
Nevertheless, analysts suggest that local governments may hesitate to enforce strict measures against overcapacity. Many officials are evaluated based on job preservation and economic growth, making them reluctant to sacrifice local enterprises for broader government goals. This reluctance was evident when a board member from a solar company in Anhui province revealed that new manufacturing projects were still being initiated despite calls for a halt from the National Development and Reform Commission (NDRC).
The Bigger Picture
The scale of the required adjustments is substantial. Analysts predict that eliminating 20-30% of existing manufacturing capacity is essential for companies to return to profitability. Jefferies analyst Alan Lau remarked that the financial losses in the solar sector mirror those seen in the real estate industry, which is significantly larger and also experiencing crisis conditions.
As the solar industry continues to contend with these challenges, the broader implications for China’s economy cannot be overlooked. The current situation serves as a stark reminder of the risks associated with central planning and rapid expansion without sustainable demand.
The unfolding crisis within China’s solar industry not only affects the companies involved but also poses a significant challenge to the country’s economic stability. As the government seeks to implement corrective measures, the path forward remains uncertain, leaving many in the industry questioning how long it will take to recover from this unprecedented downturn.
